Introduction of Ordinance Authorizing the Interim City Manager to Negotiate and Execute a Fifteen-Year Lease with Ten- and Five-Year Options to Extend, Substantially in the Form of the Attached, with Nautilus Data Technologies, Inc., a Delaware Corporation, for Building 530, an 82,251-Square Foot Building Located at 120 West Oriskany Avenue, and the Adjacent Building 600, an 343-Square Foot Building, at Alameda Point. (Base Reuse 819099)

Introduction of Ordinance Authorizing the Interim City Manager to Negotiate and Execute a Fifteen-Year Lease with Ten- and Five-Year Options to Extend, Substantially in the Form of the Attached, with Nautilus Data Technologies, Inc., a Delaware Corporation, for Building 530, an 82,251-Square Foot Building Located at 120 West Oriskany Avenue, and the Adjacent Building 600, an 343-Square Foot Building, at Alameda Point. (Base Reuse 819099)

Body

To: Honorable Mayor and Members of the City Council

From:David L. Rudat, Interim City Manager

EXECUTIVE SUMMARY

This action will authorize the Interim City Manager to negotiate and execute a fifteen-year lease with ten- and five-year options to extend, substantially in the form of the attached lease, with Nautilus Data Technologies, Inc., a Delaware corporation, for development of a water-cooled data storage facility in Building 530 and Building 600 at Alameda Point.

BACKGROUND

Nautilus Data Technologies has been interested in developing a data storage facility at Alameda Point for approximately two years. Initially, Nautilus was interested in locating its water-cooled data storage system on a barge at the piers, a technology it is currently piloting at the Port of Stockton. However, after touring Alameda Point and seeing Building 530 and its proximity to the water, lack of windows, and privacy, the company thought the building would be ideal for a land-based, water-cooled data storage facility.

Over the years, the City of Alameda (the City) has been approached by numerous data storage companies interested in locating at Alameda Point. Typically, this has not been an industry that meets the overall goals for redeveloping the base, which include job and sales tax generation. However, Nautilus’ sustainable data center design won the 2016 European Breakthrough Innovation Award and the 2015 U.S. Startup of the Year Award. Innovative technologies, especially green energy, are a key sector of the Alameda economy and are supported in the City’s Economic Development Strategic Plan (EDSP).

At its build out, Nautilus will become one of the largest consumers of energy from Alameda Municipal Power (AMP), which is important for the infrastructure development at Alameda Point and the community. At Alameda Point, the growth of Nautilus will contribute, as needed, to the upgrades for the Cartwright Substation that provides power to the Base. Nautilus will require the upgrades to Cartwright to happen more quickly and can therefore facilitate attracting other large energy consumers to the Enterprise District. The community will also benefit, because a large consumer of power will result in significant electric rate revenues for AMP, which helps all customers in Alameda by putting downward pressure on future rate increases.

DISCUSSION

Nautilus is interested in creating the first water-cooled data center at Alameda Point. The project is estimated to include $6 million in improvements to the building, which will include a new roof, façade improvement, environmental/asbestos/mold remediation, landscaping, security, and parking upgrades.

Nautilus estimates that its investment in Alameda’s infrastructure will result in millions of dollars in electrical system improvements, water intake/discharge and recirculation systems (mostly beneficial to the water cooling aspect of its project), and $5 million in high performance internet fiber and connections. In addition, Nautilus has committed to providing the City with data storage space in its facility.

Nautilus must secure the appropriate environmental permits to build its water-cooling technology. As part of the lease terms, Nautilus will have an early termination provision, which allows the tenant to terminate after fifteen months in the event it is unable to obtain its required permits. If the tenant exercises this early termination, or option, it is required to pay the City an early termination fee of $47,705.58, and forfeit the security deposit of $68,312.27.

AMP is supportive of the Nautilus proposal because at full build-out there will be a significant revenue contribution (estimated at $1.5 - $2.5 million per year), which will put downward pressure on future rate increases for all customers. Upon lease approval, AMP will execute one or more special agreement with Nautilus to address issues such as power infrastructure needs. AMP is not anticipating significant, if any, capital cost impacts associated with providing service to Nautilus. However, for power procurement, AMP has already begun evaluating different short- and long-term options, and will likely require Nautilus to provide a deposit to reduce risk during the term of the power purchase agreement.

The current Cartwright substation has space capacity to accommodate much of the projected demand from Nautilus, but AMP will require Nautilus to make a contribution to the expansion and future replacement of the facility if Nautilus exceeds a certain amount of capacity. AMP will also work to ensure there is sufficient capacity for other customers at Alameda Point and for future development.

Nautilus has provided the following information regarding job generation:

Nautilus also cites numerous examples of new businesses drawn to locations near data centers/technology infrastructure, as well as increased exposure of the Enterprise District due to the 20-plus customer representatives who will rotate on-site throughout the lease term.

The rent schedule for the lease is:

Months

Monthly Base Rent

1 - 12

$ -0-*

13 - 24

$ 46,060.56*

25 - 36

$ 47,705.58*

37 - 48

$ 47,705.58

49 - 60

$ 50,831.12

61 - 72

$ 52,356.05

73 - 84

$ 53,926.73

85 - 96

$ 55,544.53

97 - 108

$ 57,210.87

109 - 120

$ 58,927.19

121 - 132

$ 60,695.01

133 - 144

$ 62,515.86

145 - 156

$ 64,391.33

157 - 168

$ 66,323.07

169 - 180

$ 68,312.77

* Months 1 - 36 subject to partial abatement pursuant to Section 4.1(b) of the attached Form of the Lease (Exhibit 2). Nautilus Data Technologies, Inc. will spend approximately $1,100,000 on capital improvements to the Buildings during the first twenty-four (24) months of the term of the lease and an additional approximately $5,000,000 on capital improvements and tenant improvements before the expiration of the thirty-sixth (36th) month of the lease term.

Nautilus has two options to extend the lease for 10 years and 5 years, respectively. If a Renewal Option is exercised, the lease shall be extended for an additional period of ten (10) years for the first renewal and five (5) years for the second renewal.

FINANCIAL IMPACT

The monies from the leases will be deposited into the Base Reuse Fund (Fund 858) Lease Revenue account and are limited to uses permitted under the Economic Development Conveyance Memorandum of Agreement with the United States Navy.

MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE

This action is consistent with the Alameda Municipal Code.

ENVIRONMENTAL REVIEW

In accordance with the California Environmental Quality Act (CEQA), this project is Categorically Exempt under the CEQA Guidelines Section 15301(c) - Existing Facilities.

RECOMMENDATION

Approve an Ordinance authorizing the Interim City Manager to negotiate and execute a fifteen-year lease with ten- and five-year options, substantially in the form of the attached, with Nautilus Data Technologies, Inc., a Delaware Corporation, for building 530, an 82,251-square foot building located at 120 West Oriskany Avenue, and the adjacent building 600, an 343-square foot building, at Alameda Point.